European Parliament Report Recognizes Need to Tailor Capital Adequacy Rules for Asset Management Industry

Washington, DC, September 15, 2003 - A report recently adopted by the European Parliament emphasizes the need to take into account the particular characteristics and lower risk profiles of nonbanks-such as mutual funds and other investment firms-when developing capital adequacy standards. The report will be considered by the European Commission (EC) when it issues its proposal to amend the Capital Adequacy Directive.

Background
Since February 2001, the EC, in cooperation with the Basel Committee on Banking Supervision, has evaluated the EU's capital adequacy framework for banks and investment firms. An EC Capital Adequacy Directive proposal would subject investment firms, UCITS funds, and credit institutions to explicit capital requirements in order to manage operational risk-similar to requirements imposed on banking institutions.

ICI Position
The Institute believes that the EC's previous capital adequacy proposals and the Basel Committee's proposal do not appropriately take into account the lower risk profile of the asset management industry. The Institute has consistently stated that it would be inappropriate to apply bank-style regulations to the asset management industry. In this latest report, the Parliament acknowledges that in the case of asset management firms, their limited activities and risk profile indicate the need for a modified approach.

The Institute continues to urge the Commission not to impose capital requirements on the asset management industry, stating that they are unnecessary to protect investors and that high capital requirements in asset management have anticompetitive effects.

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